tax in Bedford

Can Tax Be Taxing?

Published 17th January 2022

How Income Tax and Personal Allowance works

Income Tax

Income tax is the tax charged on most types of income; the most common type being wages and salaries but can also include any profits from a businesses owned, dividends from investments, rent, and more. There are however exceptions that are tax free, for example:

  • The first £1,000 of income from self-employment – called your ‘trading allowance’
  • Income from tax exempt accounts (like ISAs and National Savings Certificates)
  • £2,000 on dividends as a ‘dividends allowance’
  • Premium bonds or National Lottery wins

 

 

Income Tax Relief

‘Tax relief’ means that you either:

  • pay less tax to take account of money you’ve spent on specific things, like business expenses if you’re self-employed
  • get tax back or get it repaid in another way, like into a personal pension

You get some types of tax relief automatically – but some you must apply for.

When You Can Get Tax Relief

Tax relief applies to pension contributions, charity donations, maintenance payments and time spent working on a ship outside the UK.

It also applies to work or business expenses – you may be able to:

Personal Allowance

The standard personal allowance is £12,570, which is the amount of income you do not have to tax on. This allowance will vary if you claim Marriage Allowance, Blind Person’s Allowance or your income is over £100,000.

  • Marriage Allowance allows you to transfer £1,260 of your personal allowance to your civil partner, increasing their personal allowance by that amount.
  • Blind Person’s Allowance is a simply an increase to your tax-free allowance.
  • However, if you are earning over £100,000, your personal allowance goes down by £1 for every £2 you earn, so if you earn £125,140 your personal allowance will decrease to zero.

There is more information on tax-free income and personal allowance at https://www.gov.uk/income-tax-rates.

tax

Income Tax Rates and Bands

The table below shows the tax rates you pay in each band if you have a standard personal allowance of £12,570. Please note that income tax bands are different if you live in Scotland. This information can be found at https://www.gov.uk/scottish-income-tax.

According to this table, if your total taxable income was £90,000. The first £12,570 you earned would be tax free, the next £37,700 would be taxed at a rate of 20%, and the remaining £39,730 taxed at 40%.

This amount would differ if you do not have the standard personal allowance. There is a similar table with this additional information on at https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands or similarly, a calculator to help you estimate your income tax for the year at https://www.gov.uk/estimate-income-tax.

Self-Assessment

Self-assessment is the system HMRC uses to collect income tax. Tax is usually deducted automatically from wages, pensions and savings but you must send a tax return if you are self-employed as a ‘sole-trader’ and earned more than £1,000 (before any tax-reliefs) or a partner in a business partnership or if you have any untaxed income, such as:

  • Money from renting out a property
  • Tips and commissions
  • Income from savings, investments and dividends
  • Foreign income

To discuss whether or not you may need to send a tax return or to get more information specific to you, please feel free to call or email us at Simas Accounting & Tax.

 

 

Simas Accounting & Tax

tax in Bedford